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7 Factors to Consider for Determining Wage and Salary Structure of Workers

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The following factors should be taken into consideration in determining wage and salary structure of workers:

(i) Labour Unions:

The labour unions attempt to work and influence the wages primarily by regulating or affecting the supply of labour. The unions exert their influence for a higher wage and allowances through collective bargaining with the representatives of the management.

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If they fail in their attempt to raise the wage and other allowances through collective bargaining, they resort to strike and other methods where by the supply of labour is restricted. This exerts a kind of influence on the employees to concerned test partially the demands of the labour unions.

(ii) Personal perception of wage:

Whether the wage is adequate and equitable depends not only upon the amount that is paid but also upon the perceptions and the views of the recipients of the wage. Even though the wage is above the going wage rate in the community if it is lower than that of fellow worker deemed inferior, it will be regarded as inequitable in the eyes of the recipients of the wage. A man’s perception of the equity of his wage will undoubtedly affect his behaviour in joining and continuing in the organisation.

(iii) Cost of living:

Another important factor affecting the wage is the cost of living adjustments of wages. This approach tends to vary money wage depending upon the variations in the cost of living index following rise or fall in the general price level and consumer price index. It is an essential ingredient of long term labour contracts unless provision is made to reopen the wage clause periodically.

There are measurement problems both in ascertaining productivity and cost of living increases. This problem may lead to lack of understanding and unanimity on the part of the management and the workers.

(iv) Government legislation:

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The laws passed and the labour policies formed by the Government have an important influence on wages and salaries paid by the employees. Wages and salaries can’t be fixed below the level prescribed by the government. The laws on minimum wages, hours of work, equal pay for equal work, payment of dearness and other allowances, payment of bonus, etc. have been enacted and enforced to bring about a measure of fairness in compensating the working class.

(v) Ability to pay:

Labour unions have often demanded an increase in wages on the basis that the firm is prosperous and able to pay. However, the fundamental determinants of the wage rate for the individual firm emanate for supply and demand. If the firm is marginal and cannot afford to pay competitive rates, its employees will generally leave it for better paying jobs. However, this adjustment is neither immediate nor perfect because of problems of labour immobility and lack of perfect knowledge of alternatives. If the firm is highly successful, there is little need to pay for more than the competitive rates to obtain personnel.

(vi) Supply and demand:

As stated earlier, the wage is a price for the services rendered by a worker or employee. The firm desires these services, and it must pay a price that will bring forth the supply, which is controlled by the individual worker or by a group of workers acting together through their unions. The practical result of the operation of this law of supply and demand is the creation of “going- wage rate”.

It is not practicable to draw demand and supply curves for each job in an organisation even though, theoretically, a separate curve exists for each job. But, in general, if anything works to decrease the supply of labour such as restriction by a particular labour union, there will be a tendency to increase the wage. The reverse of each situation is likely to result in a decrease in employee wage, provided other factors, such is those discussed below, do not intervene.

(vii) Productivity:

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Increasingly there is a trend towards gearing wage increases to productivity increases. Productivity is the key factor in the operations of a company. High wages and low costs are possible only when productivity increases appreciably. The above factors exercise a kind of general influence on wage rates. In addition, there are several factors which do affect the individual difference in wage rates.

The most important factors which affect the individual differences in wage rates are: